What You Should Know About Transferring A Card Balance

I’m one of those people who appreciates credit cards (especially cash back credit cards) as great tools that can benefit our finances when used wisely. For those who are carrying a balance on their cards and who are interested in how to pay off credit card debt more efficiently, one popular strategy is to find ways to lower your interest rates on your existing balance.

Being more frugal and developing a budget are great ways to get rid of debt, but how about focusing on credit cards themselves as tools to help us eliminate our debt faster? The fact is, you can get “cheaper debt” or retire your debt much faster simply by getting a better interest rate on it. Shifting your existing balance to 0% APR credit cards or low interest credit cards is certainly one way to do it.

Here are some tips and guidelines for doing a balance transfer that I hope will prove helpful:

Facts And Tips On Making A Balance Transfer

1. Compare credit card offers.
There are still some companies out there with balance transfer deals worth checking out. While many cards will give you both a 0% introductory APR for both balance transfers and purchases, not all of them will extend this offer. Some cards may only give you a 0% promo APR for new purchases but charge you a low rate for an existing loan transfer. The good news is that there are still a lot of attractive options out there, which we’ve culled together and made available through our credit card directory. Here is a sampling of some cards in this category:

For more options, check our comprehensive list of top 0% balance transfer cards, along with ratings. When making a choice, make sure you review their terms to pick the ones most suitable for you.

2. Realize the limits of balance transfer deals.
I remember the days when balance transfer offers would overflow my mailbox. These days, I see nary a piece of mail from credit card companies — they’re fewer and farther between. When credit was flowing so freely not too long ago, lifetime balance transfer cards were the rage, which are cards that provide a low interest rate upon transfer. The low rate remains in effect throughout the life of the balance. Unfortunately, this sweet deal became the downfall of companies like Advanta, which were forced to close credit card operations due to the cost of maintaining these card programs. Needless to say, balance transfer credit cards are now available only with more restrictive terms: 0% for a limited time (6 to 12 months), a balance transfer fee with no ceilings, higher rates when the promotional period is over.

3. Know how balance transfers work.
Balance transfer cards work as follows: they have a promotional period during which you’ll get a 0% or very low rate for a certain number of months, but once that period is over, rates are adjusted to much higher levels (perhaps to undesirable levels). Not only that, to do a transfer, you may have to pay a certain fee (typically 3%) for the privilege of owning such a card. If you believe you can pay off your balance quickly (within the limits provided by the program) or if you’re certain you’ll be paying less in charges over time by using your new card, then doing the switch will be worth it. Check this balance transfer card calculator to see how much you can save with a balance transfer card!

Warning: Although you may think you will save more money over time by switching to a new card, note that the terms and rules imposed by credit card companies are never permanent and may be changed at any time.

4. Be careful about leveraging balance transfer cards.
Credit card arbitrage is the practice of borrowing money from your credit card and depositing the borrowed funds in some vehicle that returns you higher interest than you need to pay for maintaining your loan. It was all the rage when 0% balance transfer credit card offers were a dime a dozen. There are people who rake in good money using this strategy, but I won’t be joining this game anytime soon. This may only be worth doing if:

You use cards with high enough credit limits to allow you the volume to generate returns that make the hassle of doing this worthwhile.

The earnings you get from this scheme are far beyond the costs incurred (from the card program itself and from the potential effect on your credit score).

You’re a very organized and disciplined person who’s able to track and manage the funds involved. And you actually enjoy doing this.

5. Ask the right questions before signing up.
Get some points of comparison. Size up your options by asking some questions before you apply for a card. At least, find out the basics: how long is the promotional period for? What kind of fees will you incur for late or missed payments? How is your credit card payment applied against your debt?

6. Weigh the effects of doing a transfer.
I will reiterate here that before you switch your balance onto any card, make sure you know the costs and risks of doing so. For instance, aside from the pesky balance transfer fee you’ll pay, there’s also the credit card pull that can affect your credit score whenever you apply for a new card. If you’re going to be in the market for a mortgage or some other big loan sometime soon, it’s best not to risk changes to your credit standing within a few months to a year of this big loan application.

7. Know when to use your balance transfer card.
Use your card wisely! Know how your payments will be applied against your debt; card companies will usually apply your monthly payment towards recent purchases first, then towards your balance transfer fee and finally to your actual transferred balance. So the advice? Use separate cards for spending on new purchases and for your balance transfer to ensure your payments are applied optimally. I’d also steer away from using the balance transfer card so liberally: for instance, avoid expensive cash advances because of the high fees and rates involved!

8. Close out your old cards with care.
Once you’ve switched your balance to a new card, you may debate the possibility of closing your old card accounts. I personally prefer keeping as few accounts as I can get away with because I don’t like financial clutter. But there are caveats to this; I’d tread carefully so that I don’t accidentally harm my credit score in the process.
9. Be aware of card requirements you need to uphold.
Don’t assume that just because you don’t buy anything using your new balance transfer card doesn’t mean you’re off the hook with monthly payments. If you’ve got a balance, you’ll be required to pay a minimum each month towards your debt. Making the wrong assumptions about your program’s requirements can cost you extra in penalties, so read the terms carefully.

10. Look for alternatives if you aren’t approved!
You may decide to apply for a new balance transfer credit card, but with tighter credit all around, don’t be surprised if your application is rejected. If this happens to you, you can always do the next best thing: if you’ve got several credit cards, transfer as much of your balance from high interest rate cards to your existing cards with relatively lower interest. Again, check if this is worth doing (based on cost). Just be careful that you don’t go over your credit limit for any card while you’re performing the transfers.

I know what you mean – they hook you in with zero finance and sock it to you later.

JasonMay 30, 2009 at 2:23 pm

Everyone should take up some sort of strategy to eliminate any debt. that they have. I am in the process and in this economy it is difficult. Good tips!

hxhkairMay 31, 2009 at 10:46 am

I can not yet use my money wisely..so that I am a little worried having credit card.. 🙂 (even I wily want to have it ) and your tips will help me to use a credit card wisely someday. Thanks.

Bill BeaversJune 1, 2009 at 8:41 am

It’s rare to see such good and complete information together with resources all in one post. Great information here that I hope your readers appreciate. Well done. All the best.

Life Insurance GuyJune 1, 2009 at 10:57 am

Maybe this new credit card legislation will help out…

ThomasJune 1, 2009 at 12:03 pm

Yeah the 3% fee of a balance transfer is really where they get you! I had to have my father in law get a credit card with a low ARP so I could consolidate my debt.

MeaghanJune 5, 2009 at 5:48 pm

Good advice, thanks for sharing! Ultimately even if you transfer a balance, you are still in debt so the key is to remain focused on eliminating as much as possible every month.

WestJune 8, 2009 at 9:26 am

Balance transfer is a great resource for those who want to keep, maintain and clean their credit history but we must be careful with the policies.

HelenJune 10, 2009 at 7:53 pm

Great tips — nice post. With respect to #8, I hear that closing out high-limit accounts that you’ve held for awhile can hurt your credit rating. I’ve been thinking of using CreditKarma to track changes to my ratings. (My first experiment would probably be to close an unused low-limit account.) Any thoughts?

TedJune 28, 2009 at 4:05 pm

Thank you for providing the great information. It was extremely informative.

AnnJuly 1, 2009 at 6:22 am

Thanks for sharing this informative tips! This would surely help me in the near future when I decide to get myself a new credit card.

CBallerAugust 3, 2009 at 12:04 am

Even though balance transfer deals can be beneficial, you always have to read the fine print of the deal. Traditionally the fee for a balance transfer is around 3% of the total amount transferred.

roddyAugust 3, 2009 at 4:09 am

I feel bad that credit history is too easily forgotten these days, as the providers would rather take a chance on the interest that charge; yes as stated above, keep your payments on time and your life will be easier.

DCAugust 29, 2009 at 2:32 am

The best thing about balance transfer credit cards is I can consolidate my debts and pay it off at 0% interest. That way I can take control of my finances and get out of the debt zone faster.
If you are struggling with paying debt, apply for a balance transfer credit card and choose a card based on how long you can repay your debt, your credit score and earnings.

michaelSeptember 2, 2009 at 10:21 pm

That’s great, Its certainly getting competitive in the old credit card market these days!

Thanks for providing the great information.

KathyOctober 28, 2009 at 3:10 pm

I just transferred a balance to a lower interest rate on a new credit card, and want to know if I should close the other account, or leave it open.. What is best for my credit score?

@Kathy,
To answer your question, the answer is YES, keep your old credit card account open — it will be best to preserve your credit score. You don’t have to use it, but just keep it around.

CraigOctober 30, 2009 at 7:25 am

I was wondering, if i close a credit card down, then open a new account with the same company, do i get the promotional rate on the balance transfer again.

JoelNovember 9, 2009 at 9:29 pm

@Kathy

Yes, you will definitely want to keep your old credit card account open so your credit score won’t take a hit — especially if you are planning on applying for any new lines of credit in the near future.

DoritDecember 19, 2009 at 9:45 pm

Nothing was written about a situation when a 0 APR is offered to transfer to an existing credit card with long history and good standing charging 3% transfer fee. Could this hurt my credit score? Please comment. Thanks

MattJanuary 11, 2010 at 2:19 pm

Credit cards can be great and essential tools for building credit, but can also can destroy it if not taken care of. Just like all accounts, pay on time, be aware of your balances, and you will reap the benefits. You can remove late payments if needed, but it is always best choice to pay on time first of course.

LjRFebruary 23, 2010 at 5:15 pm

This just happened to me. I’m so angry, I’ve now got a roaring headache. BofA charged me 4% of my total so that I could do a balance transfer to new card I got of theirs. My plan is to pay the total off, though, mid-March but I’m furious. They did not clearly state – THERE WILL BE A FEE OF XXXX $ TO DO THIS BALANCE XFER.

I hate these companies. They’ll do everything else but cut their own exorbitant profits to bring down costs.

I think we easily forget that owning a credit card is a “privilege” and a choice we make and not a “right”. I agree that we may now be seeing increases in fees on our cards, especially in light of the new credit card rules and legislation. Card issuers and banks are going to feel the pinch due to these laws and when they do, they’ll find ways to pass some of that cost to consumers. Bottom line? Try to be smart about when and how you’ll use a credit card. Hopefully this will minimize your costs.

paul alessandriniApril 6, 2010 at 3:39 pm

It’s best to find a system that you can stay on, in order to pay down your cards. Look to apply for a credit card with no balance transfer fee. You may think it’s not really a big deal, but the average balance transfer fee is 3% of the total balance transfer with the minimum finance charge of $5 and a maximum charge of around $75. A 0% credit card with no additional balance transfer fee charge will help you to save money in the long run.

robert G. alessandriniApril 6, 2010 at 3:43 pm

Try to get the longest 0% APR introductory period possible. The most preferable is 12 months. Most of the balance transfer cards will offer you only 6 months, but the longer the introductory period – the better.

LyndaJune 6, 2010 at 8:53 am

I have the option of transferring a $3,000 balance to a credit card. My question is this: what is better, taking a 0% balance transfer with my existing 9.9% interest rate, or paying a 4% balance transfer fee with 0% interest for 12 months. It will take me longer than the 12 months to pay, but they will not charge me back-interest. HELP! Thanks!

@Lynda,
Not sure what you mean by “0% balance transfer with your existing 9.9% interest rate”. What interest rate would you pay for the new balance transfer? Since you’ll be carrying a balance after the 0% intro rate expires, do take a look at the regular rate after 12 months to see how much interest you’d pay at the regular rate. The general advice here is that if you’re going to carry a balance for a long period of time, then a low interest rate card is better.

Doing a balance transfer to a 0% card only makes sense if you can pay off your balance quickly so you can enjoy the 0% rate and come out ahead.

Steve SildonJune 9, 2010 at 11:13 pm

This is clearly the best post on the subject matter of balance transfers. The discussion on “leveraging” balance transfer cards is a topic that I have loads of experience with and can tell you this … listen to SBV when she says “be careful” . I got stuck behind an expiring balance transfer after an unpaid bill was reported to collections. OUCH!!

RowenaJuly 12, 2010 at 8:29 pm

This post is totally right. You need to be careful with balance transfer offers because not all of them are pretty all through out the duration of your payment. So it is good to weigh in your options before making a transfer from one credit card to another.

Joe BossingerJuly 31, 2010 at 6:23 am

Credit cards are a necessary evil, at least at some point nearly everyone’s lives. It’s so obvious that every credit card company is hoping their card holders slip up so they can reap the rewards.

RonAugust 31, 2010 at 7:39 am

08/31 I just checked my AMEX Costco Truearnings card and there is no balance transfer offer.

@Ron,
Thanks for the information. I appreciate it! I have made updates accordingly. By the way, for the most updated credit card lists, do check out our new credit card pages! We have a new Credit Card Center where we provide rankings for cards. Here is our 0% balance transfer card list and the 0% intro APR card list. Hopefully these resources can make the selection process easier.

RonSeptember 1, 2010 at 11:18 am

@ Silicon Valley Blogger. Thx. I love this this summary page because it summarizes the most critical part of the balance transfer…. The fees.

nicole terryJanuary 19, 2011 at 11:58 pm

I need a new card!

NikkiApril 27, 2011 at 1:40 pm

That balance credit card table is awesome! I have a fair amount of credit debt and I might be able to pull something off and save money thanks to you!

daveJanuary 15, 2012 at 12:48 pm

I would love to get balance transfer cards with no transfer fees and large credit limit!